This was published 1 year ago
‘Is that seriously your answer?’: Former CBA boss Narev in class action hot seat
The former boss of the Commonwealth Bank says issues about its adherence to anti money-laundering obligations were raised with him in a 2013 internal report, four years before AUSTRAC took legal action against the bank for allowing criminals to launder millions of dollars through its ATMs.
Ian Narev, the bank’s chief executive between 2011 and 2018, was cross-examined on Monday as part of a class action brought on behalf of investors who suffered losses when the financial intelligence agency, AUSTRAC, announced it would begin legal proceedings against CBA in 2017 for breaching anti-money laundering laws.
The bank’s share price fell more than 5 per cent, over several days, on the back of the announcement.
Former Commonwealth Bank of Australia chief executive Ian Narev faced questioning in the Federal Court on Tuesday. Credit: Photo: Fairfax
Several weeks after AUSTRAC’s announcement, Narev, who is now the chief executive of SEEK, announced he would step down as the chief executive in June the following year.
CBA later agreed to pay a $700-million fine to settle the case with the watchdog, admitting to a host of breaches of anti-money laundering laws. The plaintiffs in the class action allege that CBA knew about non-compliance several years before AUSTRAC’s announcement and by failing to disclose that information to the ASX, it breached its continuous disclosure obligations.
The bank argues that when it first became aware of the breaches, it did not know that AUSTRAC would launch a lawsuit. Its lawyers told the court last week that Narev dealt with the issue in a “wholly appropriate manner”.
Narevgave evidence at the Federal Court in Sydney on Monday. He was cross-examined by Jeremy Stoljar, SC, who presented him with a number of reports, briefing papers and meeting documents - dated between 2011 and 2014 - that raised issues about the way CBA was adhering to its anti-money laundering obligations.
The court heard an internal audit of the bank’s anti-money laundering framework was completed in December 2013, which highlighted a number of serious issues.
“The whole picture painted by the audit is unsatisfactory,” Narev told the court. “There were very clearly aspects of the group’s compliance with [anti-money laundering] requirements which were inadequate.”
The court heard the audit pointed out concerns with a platform CBA’s staff were supposed to use to escalate compliance issues around anti-money laundering and counter-terrorism financing.
“The platform itself … the way it was being used I completely accept was not adequate,” said Narev.
It was put to Narev that given the audit suggested money laundering issues were not being properly flagged and escalated, it followed that there could have been compliance issues that were not reported to AUSTRAC.
Narev said he didn’t have any concerns that matters of compliance were not being reported to AUSTRAC, because the audit report itself had been provided to the regulator.
“Is that seriously your answer, Mr Narev?” asked Stoljar.
“It’s in the report,” replied Narev.
“The fact that AUSTRAC may have received a copy of the December internal audit has nothing to do with the question I put to you, does it?” Stoljar said.
“What you said to me was matters of compliance were not being reported to AUSTRAC, and I am making it clear a report on all matters of non-compliance was immediately provided to AUSTRAC,” Narev said.
AUSTRAC later expressed concerns about the internal audit report and requested detailed monthly reporting and meetings to monitor CBA’s progress. PwC was engaged in 2014 to review the settings and said there was ambiguity around CBA’s anti-money laundering framework, and it was not consistently understood across the company. Soon after, the bank received a letter from APRA that also outlined concerns about its ability to manage these kinds of risks.
Narev said during this time, the bank implemented several programs with the aim of strengthening its anti-money laundering processes.
Stoljar became frustrated with Narev at times during Tuesday’s hearing, at one point accusing him of using “loose language”, and later telling him not to look at CBA’s legal team during the cross-examination.
“You don’t need to watch [CBA lawyer] Ms Collins,” said Stoljar. “You can look this way.”
When Narev started to answer a question by saying “I will give you a bit of substance on this”, Stoljar interrupted him. “I don’t want a bit of substance,” he retorted. “I want an answer to my question.”
“I’m not asking for another speech Mr Narev,” he said later in the day. “I’m just asking you a question.”
The hearing, before Federal Court judge David Yates, continues.
In a separate matter, law firm Slater and Gordon on Monday said it had settled class actions over consumer credit insurance with CBA, ANZ Bank and Westpac for a combined $126 million.
Consumer credit insurance was sold to customers taking out personal loans or credit cards, and banks said the product would help cover repayments if customers lost their job, got sick or died. However, the 2018 royal commission highlighted that often, customers were ineligible to lodge a claim.
Slater and Gordon said it expected up to one million customers would be eligible to receive compensation.
How much of the $126 million will be paid to customers has not yet been determined, but a Slater and Gordon spokeswoman said the firm expected the share of the settlement that would cover legal costs would be “at the lower end of the range when compared to other class actions.”
The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.